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AP Microeconomics

Subjects : economics, ap
Instructions:
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. The downward part of the LRAC curve where LRAC falls as plan size increases. This is the result of specialization - lower cost of inputs - or other efficiencies of larger scale.






2. The additional benefit received from the consumption of the next unit of a good or service






3. The combination of labor and capital that minimizes total costs for a given production rate. Hire L and K so that MPL / PL = MPK / PK or MPL/MPK = PL/PK






4. Excess demand; a shortage exists at a market price when the quantity demanded exceeds the quantity supplied






5. The difference between the monopolistic competition output Qmc and the output at minimum ATC. Excess capacity is underused plant and equipment






6. Goods that are both nonrival and nonexcludable. One person's consumption does not prevent another from also consuming that good and if it is provided to some - it is necessarily provided to all - even if they do not pay for that good






7. The most desirable alternative given up as the result of a decision






8. The difference between your willingness to pay and the price you actually pay. It is the area below the demand curve and above the price






9. For one good - constrained by prices and income - a consumer stops consuming a good when the price paid for the next unit is equal to the marginal benefit received






10. The difference between the price received and the marginal cost of producing the good. It is the area above the supply curve and under the price






11. Ei = (%dQd good X)/(%d Income)






12. The output where ATC is minimized and economic profit is zero






13. Measures the cost the firm incurs from using an additional unit of input. In a perfectly competitive labor market - MRC = Wage. In a monopsony labor market - the MRC > Wage






14. ATC = TC/Q = AFC + AVC






15. Ed = 0 - no response to price change






16. Ed = (%dQd)/(%dP). Ignore negative sign






17. Production inputs that cannot be changed in the short run. Usually this is the plant size or capital






18. AFC = TFC/Q






19. Production of maximum output for a given level of technology and resources. All points on the PPF are productively efficient






20. Labor demand for the firm is MRPL curve. The labor demanded for the entire market DL = ?MRPL of all firms






21. Entry (or exit) of firms does not shift the cost curves of firms in the industry






22. Another way of saying that firms are earning zero economic profits or a fair rate of return on invested resources






23. 0 < Ei < 1






24. The lost net benefit to society caused by a movement away from the competitive market equilibrium






25. Occurs when there is no more incentive for firms to enter or exit. P=MR=MC=ATC and profit = 0






26. Demand for a resource like labor is derived from the demand for the goods produced by the resource






27. A legal minimum price below which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent surplus






28. The difference between total revenue and total explicit and implicit costs






29. Excess supply; exists at a market price when the quantity supplied exceeds the quantity demanded.






30. Holding all else equal - when the price of a good rises - consumers decrease their quantity demanded for that good






31. Total revenue rises with a price increase if demand is price inelastic and falls with a price increase if demand is price elastic






32. Production of the combination of goods and services that provides the most net benefit to society. The optimal quantity of a good is achieved when the MB = MC of the next unit and only occurs at one point on the PPF






33. The case where economies of scale are so extensive that it is less costly for one firm to supply the entire range of demand






34. Entry of new firms shifts the cost curves for all firms downward






35. A period of time too short to change the size of the plant - but many other - more variable resources can be changed to meet demand






36. Substitutes - cost as percentage of income - and time to adjust to price changes all influence price elasticity






37. The upward part of the LRAC curve where LRAC rises as plant size increases. This is usually the result of the increased difficulty of managing larger firms - which results in lost efficiency and rising per unit costs.






38. The imbalance between limited productive resources and unlimited human wants






39. The sum of consumer surplus and producer surplus






40. Entry of new firms shifts the cost curves for all firms upward






41. A per unit tax on production results in a vertical shift in the supply curve by the amount of the tax






42. MUx / Px = MUy/Py or MUx/MUy = Px/Py






43. Consumer income - prices of substitute and complementary goods - consumer tastes and preferences - consumer speculation - and number of buyers in the market all influence demand






44. TR = P * Qd






45. The study of how people - firms - and societies use their scarce productive resources to best satisfy their unlimited material wants.






46. A measure of industry market power. Sum the market share of the four largest firms and a ratio above 40% is a good indicator of oligopoly






47. Additional benefits to society not captured by the market demand curve from the production of a good - result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good






48. Ei > 1






49. A good for which higher income decreases demand






50. A group of firms that agree not to compete with each other on the basis of price - production - or other competitive dimensions. Cartel members operate as a monopolist to maximize their joint profits







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